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A  Pay  As  You  Go  Pension  Plan 


unity 


THE  advantages  to  industry  of  a  Pension  System  are  so  many  that,  despite 
the  large  and  uncertain  costs  of  the  Pension  Plans  hitherto  offered,  employers 
are  more  generally  putting  Pension  Systems  into  effect. 

Many  employers,  though  fully  appreciating  the  advantages,  have  been  deterred 
from  announcing  any  Pension  Plan  by  the  uncertainties  as  to  cost. 

Recognizing  the  increasing  demand  for  a  scientific  Pension  System  which 
should  be  at  once  simple  and  effective,  and  the  cost  of  which  might  be  closely 
approximated  in  advance,  the  Metropolitan  Life  Insurance  Company  has  con¬ 
ducted  a  considerable  investigation  of  the  entire  subject,  as  the  result  of  which 
it  is  able  now  to  announce  a  system  which  combines  all  of  the  desired  qualities. 

MANY  of  the  difficulties  of  Pension  Plans  hitherto  established  have  arisen 
from  the  treatment  of  Pension  payments  as  current  liabilities  to  be  paid 
yearly  as  an  operating  expense,  and  from  the  constant  and  long  continued  increase 
of  these  payments  rising  sometimes  to  an  amount  equivalent  to  more  than  20  per 
cent,  of  the  current  payroll. 

These  great  and  indeterminate  costs  can  be  provided  against  only  by  the 
setting  up  of  a  reserve  during  the  period  of  active  employment,  sufficient  at  the 
retirement  age  to  provide  for  the  subsequent  Pension  or  Annuity  payments. 

Such  a  reserve,  created  and  continued  by  annual  payments  with  respect  of 
each  employee,  if  scrupulously  segregated  and  permitted  under  wise  guidance  to 
accumulate  during  the  period  of  employment,  absorbs  a  comparatively  small 
percentage  of  the  active  payroll.  The  great  difficulty  of  knowing  precisely  the 
amount  which  should  be  thus  set  aside  arises  from  the  uncertainties  of  the  labor 
turnover  and  of  the  wage  scale,  both  of  which  may  vary  greatly  within  twenty-five 
or  thirty  years,  without  the  possibility  of  prediction. 

Because  of  the  very  long  period  between  the  setting  up  of  the  first  reserve 
and  the  making  of  the  last  Pension  payment, — often  more  than  half  a  century — 
and  of  the  rapid  changes  both  of  management  and  corporate  structure  to  which 
employing  organizations  are  inevitably  subject,  it  is  clearly  desirable  that  the 
guardianship  of  a  Pension  Fund  should  be  in  the  hands  of  an  institution  permanent 
in  its  nature  and  most  carefully  safeguarded,  both  as  to  its  business  conduct  and 
the  investment  of  the  funds  held  by  it  as  trustee. 

These  qualifications  are  possessed  in  a  high  degree  and  almost  exclusively  by^f 
Life  Insurance  Companies. 

Owing  to  the  impossibility  of  predicting  either  length  of  employment  or  final 
salary,  the  safe,  simple  and  sure  method  for  the  employer  to  take  care  of  future 
payments  to  an  individual  might  better  be  based  on  calculations  dealing  with 
the  individual  himself  than  with  his  relationship  to  a  group. 

The  plan  presented  by  the  Metropolitan  Life  Insurance  Company  is  based, 
not  only  on  the  individual,  but  on  a  single  year  of  employment.  The  Company 

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issues,  in  consideration  of  a  specific  amount  paid  in  advance,  an  individual 
deferred  annuity  contract  under  which  it  is  bound  to  pay  to  the  holder  (namely 
to  the  employee)  on  his  sixty-fifth  birthday  a  certain  amount  of  money,  and  to 
repeat  this  payment  on  each  subsequent  birthday  as  long  as  he  may  live.  f 

This  amount  may  be  $10  or  any  other  sum  above  $10.  Thus,  an  employee 
who  receives  one  of  these  contracts  (called  “Pension  Bonds”  or  “Retirement 
Certificates”),  when  he  is  25  years  old,  will,  beginning  with  his  sixty-fifth  birthday,  * 

receive  an  annual  payment  for  life  of  $10. 

Clearly,  if  during  each  of  the  forty  subsequent  years  he  receive  a  similar 
document,  he  will  by  the  time  he  is  sixty-five  have  accumulated  forty  $10  units, 
as  to  each  of  which  he  will  be  paid  $10  a  year  by  the  Insurance  Company;  his 
aggregate  yearly  income  or  Pension  at  that  time,  thus  being  forty  times  $10  or 
$400. 

Contributory  Plans 

While  it  is  perfectly  possible  for  the  employer  to  pay  the  total  cost  of  these 
Pension  Bonds  or  Retirement  Certificates  and  to  deliver  them  annually  to  his 
employees  during  their  period  of  service,  thus  automatically  setting  up  an  adequate 
Pension  reserve,  it  is  equally  possible  for  the  employee  and  the  employer  to  join 
in  this  payment. 

If  the  employee  is  to  contribute  toward  the  cost  of  the  Pension  Plan,  he 
makes  certain  very  definite  demands  which  must  be  met.  The  first  of  these  is 
that,  in  the  event  of  his  separation  from  the  service,  there  shall  be  returned  to 
him  his  contribution  in  money  or  its  equivalent. 

The  disadvantage  of  a  cash  return  of  contributions  to  departing  employees  is 
obviously  the  fact  that  the  time  may  come  when  the  money  which  would  be  re¬ 
turned  to  him  on  giving  up  his  job  is  more  important  to  him  than  the  job  itself, 
and  he  therefore  inclines  to  quit  in  order  to  get  back  his  money. 

Partly  for  this  reason,  and  partly  because  if  Pension  Bonds  or  Retirement 
Certificates  had  a  cash  value  to  the  employee,  he  would  in  many  cases  cash  them 
in  instead  of  waiting  to  benefit  by  the  Annuity,  Metropolitan  Pension  Bonds  or 
Retirement  Certificates  have  no  cash  value  to  the  employee. 

There  are  two  other  requirements  in  a  contributory  Pension  Plan  which  do 
not  hold  if  the  employer  pays  the  entire  cost  of  the  Pensions. 

1.  In  the  event  of  death  prior  to  the  Pension  age,  the  amount 
paid  by  the  employee  must  be  returned  to  him. 

2.  In  the  event  of  death  after  the  first  Retirement  payment  but 
before  the  total  amount  thus  paid  has  equalled  the  amount 
contributed  by  the  employee,  subsequent  payments  must  be 
made  to  his  estate,  approximating  if  not  equalling  or  exceed¬ 
ing  the  amount  paid  by  him. 

To  conform  to  this  requirement,  the  Metropolitan  Life  Insurance  Company 
has  issued  a  second  form  of  Deferred  Annuity  called  “Refunding  Pension  Bonds” 
or  “Retirement  Certificates  with  Death  Benefit,”  carrying  these  two  additional 
provisions. 

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These  and  other  added  provisions  somewhat  increase  the  cost  of  this  second 
form. 

A  Technical  description  and  schedule  of  costs  of  each  of  these  forms  will  be 
found  on  the  last  page  of  this  booklet. 

Dr.  Henry  S.  Pritchett  of  the  Carnegie  Foundation  has  said: 

“Any  employer  that  undertakes  to  carry  the  liabilities  which 
accrue  under  a  system  of  non-contributory  Pensions  will  in 
the  end  find  the  load  intolerable.  ” 

Experience  multiplies  not  only  to  confirm  this  statement  but  to  demonstrate 
more  and  more  clearly  the  advantages  alike  to  the  employer  and  to  the  employee 
of  contributory  plans.  Not  the  least  of  these  advantages  is  the  inculcation  of 
the  habit  of  saving  which  in  itself  is  amply  worthwhile. 


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Amount  of  Pension 

The  amount  of  Retirement  allowance  is  a  matter  of  judgment.  It  is  usually 
based  on  a  percentage  of  final  salary ;  among  railways  and  industrial  corporations — 
1  per  cent,  is  usual.  This  ranges  upward  to  2  per  cent.,  and  sometimes  even  2\ 
per  cent,  among  banks  and  similar  institutions. 

It  is  obviously  impossible  at  the  beginning  of  a  man’s  employment  to  fore¬ 
cast  exactly  what  his  final  salary  may  be,  or  to  set  up  any  reserve  with  respect 
of  it.  A  sounder  practice,  if  a  percentage  basis  be  decided  upon,  and  one  which 
is  at  least  capable  of  permitting  provision  to  be  made  in  advance  for  the  Pension 
payment,  is  a  percentage  based  on  the  average  salary  for  the  whole  period  of 
employment.  This  can  be  made  to  produce  results  similar  to  the  final  salary 
basis  by  increasing  the  percentage.  Metropolitan  Pension  Bonds  or  Retirement 
Certificates  lend  themselves  easily  to  this  plan. 

Clearly,  if  a  Pension  is  to  be  based  on  1  per  cent,  of  the  average  salary  multi¬ 
plied  by  the  years  of  service,  it  is  only  necessary  that  there  be  provided  for  each 
employee  each  year  a  Pension  Bond  or  Retirement  Certificate  to  the  extent  of 
1  per  cent,  of  that  year’s  salary.  Automatically  at  the  end  of  the  period  the 
employee  will  have  accumulated  Pension  Bonds  or  Retirement  Certificates  suffi¬ 
cient  to  yield  him  an  Annuity  equal  to  1  per  cent,  of  his  average  earnings  for  the 
total  period. 

Another  plan  having  the  great  advantage,  especially  if  employees  are  to 
contribute  to  it,  of  extreme  simplicity,  is  the  allowance  of  a  Pension  based  on  a 
fixed  sum  as  to  each  year  of  service.  Thus,  a  Pension  based  on  a  fixed  amount  of 
$10  for  each  year  of  service  would,  at  the  end  of  thirty  years  of  service,  yield  $300 
a  year.  Based  on  $15  a  year,  the  yield  would  be  $450  for  thirty  years  of  service, 
and  so  on. 

Age  of  Retirement.  The  age  of  retirement  most  generally  accepted  in  industry 
is  65.  Therefore,  Metropolitan  Pension  Bonds  or  Retirement  Certificates  have 
been  made  normally  payable  beginning  with  the  sixty-fifth  birthday.  Each  con¬ 
tains,  however,  a  provision  that  at  the  owner’s  option  the  Annuity  may  begin 
at  an  earlier  period  with  a  smaller  annual  payment  to  the  owner,  and  at  a  later 
period  with  a  larger  annual  payment,  and  a  table  of  the  alternative  proportionate 
payments  for  ages  55  to  75  is  printed  in  each  bond. 


[3 


Suspension  or  Discontinuance.  Because  each  Metropolitan  Pension  Bond  or 
Retirement  Certificate  is  a  unit  complete  in  itself,  having  no  connection  with  any 
Pension  Bond  or  Retirement  Certificate  previously  or  subsequently  issued,  a  Pension 
Plan  operated  under  this  system  may  be  suspended  or  discontinued  with  no  loss 
whatever  to  any  employee  or  pensioner. 

If  an  employee  has  worked  for  thirty  years,  during  two  of  which  the  plan 
was  suspended,  he  will  have  accumulated  twenty-eight  instead  of  thirty  units. 
His  retirement  allowance  would  be  (on  a  $10  a  year  basis)  $280  instead  of  $300. 
Certainly  this  is  no  great  hardship;  and  meantime  there  has  been  neither  discon¬ 
tinuance  nor  delay  of  any  Pension  payment  to  an  employee  who  had  already 
begun  to  draw  his  Annuity. 

The  discontinuance,  suspension  or  reduction  of  Pension  payments,  ne¬ 
cessitated  by  some  unforeseen  business  catastrophe,  has  resulted  most  disastrously 
for  all  concerned.  The  employer  whose  employees  are  protected  by  Metropolitan 
Pension  Bonds  or  Retirement  Certificates  knows  of  a  certainty  that  no  business 
condition  affecting  his  industry  can  interrupt  or  stop  the  payment  of  the  Pensions 
to  superannuated  employees,  whose  very  livelihood  is  at  times  dependent  on  them. 

Division  of  Payments  Between  Employer  and  Employee.  Not  the  least 
advantage  of  Metropolitan  Pension  Bonds  or  Retirement  Certificates  is  their 
adaptability  to  almost  any  scheme  of  Pensions.  Payment  for  them  is  equally 
adaptable  to  almost  any  predetermined  plan. 

For  the  purpose  of  illustration  there  follows  a  copy  of  a  circular,  addressed  to 
employees,  which  explains  in  simple  words  the  workings  of  a  contributory  plan 
based  on  the  setting  up  of  a  Retirement  allowance  of  $10  for  each  year  of  service 
after  the  first  year. 

The  cost  of  the  Pension  Bond  or  Retirement  Certificate  at  his  age  of  entry 
into  the  service  is  paid  by  the  employee,  the  difference  between  this  cost  and  the 
cost  at  his  age  at  each  subsequent  year  being  paid  by  the  employer. 

In  examining  this  plan  it  should  be  borne  in  mind  that  it  is  an  example  of 
one  form  merely,  and  is  subject  to  almost  limitless  variation.  It  is  submitted  to 
give  in  concrete  form  the  actual  operation  of  one  type  of  Pension  Plan.  Some 
comments  on  the  plan  itself  and  a  further  discussion  of  costs  follow  the  “Circular 
to  Employees.  ” 


4 


Suggested  Circular  To  Employees 


INDEPENDENCE  AND  RETIREMENT  PLAN* 

What  the  Retirement  Plan  is 

It  is  a  plan  under  which  every  member  will  receive  a  certain  amount  of  money 
on  the  day  he  is  sixty-five  years  old  (or,  if  he  choose,  a  less  amount  at  an  earlier 
age  or  a  greater  amount  at  a  later  age),  and  the  same  amount  every  year 
thereafter  as  long  as  he  lives. 

Who  May  Join  the  Retirement  Plan 

Every  employee  of  this  Company  who  has  been  employed  for  one  year  or  more 
may  join  the  Plan. 

How  Much  the  Retirement  Payment  is 

Beginning  with  $10  for  the  first  year  of  membership,  the  amount  of  the  yearly 
Retirement  payment  increases  $10  for  every  year  of  membership.  If  you  are  a 
member  for  twenty  years,  the  payment  which  you  would  receive  every  year  as 
long  as  you  live  after  you  are  sixty-five  would  be  twenty  times  $10,  or  $200. 

What  Membership  Costs 

The  cost  of  membership  depends  on  your  age  when  you  were  employed  by  this 
Company.  The  younger  you  were  when  you  began  working  here,  the  cheaper 
the  cost  of  membership. 

The  table  shows  how  much  per  week  membership  cost  YOU  for  a  retirement 
allowance  of  $10  a  year  for  each  year  of  membership. 

Find  your  age  at  the  date  of  your  employment. 


IF  YOU  ARE  A  MAN  IF  YOU  ARE  A  WOMAN 


and  began  work 
here  when 
you  were: 

the  weekly 
cost  to 
you  is: 

and  began  work 
here  when 
you  were: 

the  weekly 
cost  to 
you  is: 

and  began  work 
here  when 
you  were: 

the  weekly 
cost  to 
you  is: 

and  began  work 
here  when 
you  were: 

the  weekly 
cost  to 
you  is: 

14  years  old . . . 

. $0.30 

40  years  old. . . 

. $0.91 

14  years  old . . . 

. $0.35 

40  years  old . . . 

. $1.02 

16  years  old . . . 

. 32 

41  years  old. . . 

. 95 

1 5  years  old . . . 

. 36 

41  years  old . . . 

.  1.06 

16  years  old . . . 

. 33 

42  years  old. . . 

.  1.00 

1 6  years  old . . 

. 38 

42  years  old . . . 

.  1.11 

17  years  old . . . 

. 34 

43  years  old. . . 

.  1.04 

17  years  old . . 

. 39 

43  years  old. . . 

.  1.16 

18  years  old . . . 

. 36 

44  years  old.  . 

.  1.09 

18  years  old . . 

. 41 

44  years  old . . . 

.  1.21 

19  years  old . . . 

. 37 

46  years  old .  . 

.  1.14 

19  years  old. . 

. 43 

45  years  old . . . 

.  1.26 

20  years  old . . . 

. 39 

46  years  old . . 

.  1.19 

20  years  old . . 

. 44 

46  years  old . . 

.  1.31 

21  years  old . . 

. 41 

47  years  old .  . 

.  1.24 

21  years  old. . 

. 46 

47  years  old. . 

.  1.37 

22  years  old . . 

. 42 

48  years  old. .  . 

.  1.30 

22  j^ears  old . . 

. 48 

48  years  old . . 

.  1.43 

23  years  old . . 

. 44 

49  years  old. .  . 

.  1.36 

23  years  old.  . 

. 50 

49  years  old. . 

.  1.49 

24  years  old . . 

. 46 

60  years  old. .  . 

.  1.42 

24  years  old . . 

. 52 

60  years  old . . 

.  1.55 

26  years  old. . 

. 48 

61  years  old. . . 

.  1.48 

26  years  old . . 

. 54 

61  years  old . . 

.  1.62 

26  years  old . . 

. 50 

62  years  old . . 

.  1.54 

26  years  old . . 

. 57 

52  years  old . . 

.  1.69 

27  years  old . . 

. 52 

63  years  old . . 

.  1.61 

27  years  old. . 

. 59 

53  years  old . . 

.  1.76 

28  years  old . . 

. 54 

64  years  old. . 

.  1.68 

28  years  old. . 

. 62 

64  years  old . . 

.  1.83 

29  years  old. . 

. 57 

66  years  old . . 

.  1.75 

29  years  old . . 

. 64 

65  years  old . . 

.  1.91 

30  years  old . . 

. 59 

66  years  old . . 

.  1.82 

30  years  old . . 

. 67 

66  years  old .  . 

.  1.98 

31  years  old. . 

. 62 

67  years  old . . 

.  1.90 

31  years  old. . 

. 70 

57  years  old  . . 

.  2.06 

32  years  old . . 

. 64 

68  years  old .  . 

.  1.98 

32  years  old . . 

. 73 

68  years  old. 

.  2.15 

33  years  old . . 

. 67 

69  years  old. . 

.  2.05 

33  years  old . . 

. 76 

59  years  old . . 

.  2.23 

34  years  old . . 

. 70 

60  years  old . . 

.  2.13 

34  years  old .  . 

. 79 

60  years  old . . 

.  2.31 

36  years  old . . 

. 73 

61  years  old. . 

.  2.21 

36  years  old . . 

. 83 

61  years  old. . 

.  2.40 

36  years  old . . 

. 77 

62  years  old .  . 

.  2.29 

36  years  old . . 

. 86 

62  years  old. . 

.  2.48 

37  years  old . . 

. 80 

63  years  old . . 

.  2.37 

37  years  old . . 

. 90 

63  years  old .  . 

.  2.57 

38  years  old. . 

. 84 

64  years  old. . 

.  2.44 

38  years  old . . 

. 94 

64  years  old . . 

.  2.65 

39  years  old . . 

. 87 

39  years  old . . 

. 98 

The  cost  of  membership  will  be  deducted  from  each  member’s  weekly  pay  for 


fifty  weeks  in  each  year. 

*This  Company  reserves  the  right  to  modify  or  discontinue  or  suspend  this  plan  at  any  time  without  notice,  in  which  event  all  money 
paid  in  by  employees,  for  which  Retirement  Certificates  have  not  been  delivered,  will  be  returned.  Such  action,  however,  will  not  in  any  way 
affect  the  payment  of  retirement  allowances  as  to  Certificates  already  issued.  Neither  the  establishment  of  this  system  nor  the  granting  of  a 
Pension  shall  give  any  employee  a  right  to  continue  in  the  employment  of  this  Company.  The  right  and  power  of  the  Company  to  dismiss 
or  discharge  any  employee  is  hereby  expressly  reserved. 


Who  Keeps  the  Money  for  You 

The  Metropolitan  Life  Insurance  Company,  with  over  a  billion  and  a  quarter 
dollars  in  its  treasury  to  protect  you,  gets  the  money  that  is  paid  by  the  mem¬ 
bers  and  by  the  employer,  and  every  year  as  long  as  you  are  a  member  of  the 
plan  issues  to  you  a  RETIREMENT  CERTIFICATE  WITH  DEATH 
BENEFIT  guaranteeing  to  pay  you  $10  on  your  sixty-fifth  birthday,  and  to 
repeat  this  payment  every  subsequent  birthday  as  long  as  you  live. 

Who  Pays  the  Cost 

The  cost  is  paid  partly  by  the  members  and  partly  by  this  Company.  The 
longer  you  have  been  employed  the  more  the  Company  pays.  Your  payment 
does  not  change;  the  Company’s  payment  increases  every  year. 

What  Happens  If  You  Die 

If  you  die  before  you  begin  to  draw  your  Retirement  payments,  your  family 
or  whoever  you  may  name  gets  back  from  the  Metropolitan  Life  Insurance 
Company  all  the  money  that  you  have  paid  on  account  of  your  RETIRE¬ 
MENT  CERTIFICATES  WITH  DEATH  BENEFIT,  and,  in  addition,  all 
money  that  this  Company  has  paid  for  you  on  account  of  them. 

Whether  you  live  or  die  you  are  guaranteed  at  least  ten  annual  Retirement 
payments  on  the  Certificates  you  helped  to  pay  for,  so,  if  you  die  after  you 
have  begun  to  draw  your  payments,  the  Metropolitan  keeps  right  on  paying 
your  family  (or  whoever  you  may  name)  your  full  Retirement  Pay  each  year 
until  it  has  made  to  you  and  them  together  at  least  ten  payments. 

Any  Retirement  Certificates  which  may  be  given  you  free  by  this  Company  provide  an 
annual  payment  for  life,  beginning  when  you  are  65,  but  no  additional  payment  after  you  die. 

What  I-Iappens  If  You  Leave 

If  you  leave,  you  get  back  all  you  have  paid  during  that  year  in  full. 

If  you  leave  after  you  have  received  your  Retirement  Certificate,  it  is  just 
as  good  as  though  you  stayed  here.  Wherever  you  are,  when  you  reach  the 
age  of  sixty -five,  the  Metropolitan  Life  Insurance  Company  will  pay  you  the 
total  amount  of  all  the  certificates  you  own,  and  will  keep  on  paying  the  same 
amount  again  every  year  as  long  as  you  live. 

Convenient  Payments 

Retirement  payments  will  be  made  in  monthly  or  quarterly  instalments  if 
you  wish,  provided  each  instalment  is  at  least  $10.  Also,  you  may  begin  to 
draw  your  Retirement  allowance  before  you  are  65,  in  a  reduced  amount;  or 
after  you  are  65  in  an  increased  amount,  depending  on  the  age  at  which  you 
decide  to  begin  drawing.  The  exact  amounts  at  varying  ages  are  printed 
clearly  in  each  Certificate. 

Most  important  of  all,  your  Certificates  cannot  be  cashed.  So  no  one  can 
steal  the  money  from  you ;  no  one  can  borrow  it  from  you ;  no  one  can  induce 
you  to  invest  it  in  some  way  by  which  it  might  be  lost. 

YOU  CANNOT  POSSIBLY  LOSE. 


Notes  on  This  Plan  of  Retirement 


THE  plan  outlined  in  the  circular  is  so  explained  that  every  employee  can  easily 
understand  it.  He  knows  that  by  the  payment  of  a  few  cents  a  week  he 
will  receive: 

1.  A  Retirement  payment  of  $10  a  year  for  life  as  to  each  year  he  is  a  member 
of  the  Plan. 

2.  If  he  dies  before  retirement,  his  money  back  plus  the  Employer’s  contribu¬ 
tion  on  Certificates  purchased  jointly.  This  amounts  to  his  own 
contribution  with  interest  at  about  4  per  cent. 

3.  If  he  lives  to  retirement  age,  a  guarantee  of  at  least  10  Retirement  payments. 

Past  Service 

Now  supposing  he  is  getting  along  in  years.  He  has  already  given,  say  twenty 
years  to  the  service.  When  he  came  to  work  there  was  no  Pension  Plan  for  him  to 
join.  He  is  now  fifty  years  old.  To  put  aside  one  Ten  Dollar  Retirement  Certifi¬ 
cate  every  year  for  the  fifteen  years,  from  now  until  he  is  sixty-five,  would  give  him 
only  $150  a  year.  Perhaps  he  is  already  fifty-five  or  fifty-six,  when  his  case  would 
be  still  worse. 

What  is  to  be  done  about  past  service? 

The  simple,  direct  thing  to  do  about  it  is  for  the  employer  to  buy  for  him  a 
modified  Retirement  Certificate,  with  no  refund  or  guarantee  in  case  of  death, 
amounting  to  $10  for  each  year  from  the  time  he  came  to  work  until  the  present  day. 
Thus,  for  twenty  years  of  past  service  he  would  have  a  Retirement  Certificate  call¬ 
ing  for  the  payment  of  a  Retirement  allowance  of  Two  Hundred  Dollars  a  year, 
beginning  on  his  sixty-fifth  birthday  and  continuing  so  long  as  he  lives.  This,  added 
to  the  $150  or  more  which  he  will  help  buy  for  himself  in  the  next  fifteen  years  would 
give  him  a  total  of  $350  a  year  as  a  Pension,  beginning  at  age  65,  which  is  about 
the  average  Industrial  Pension. 

Retirement  Certificates  as  to  past  service  are  given  only  to  those  employees 
who  join  the  plan  and  agree  to  help  pay  for  their  own  retirement  as  to  future  service. 
Thus  used,  they  serve  the  double  purpose  of  enabling  the  employer  to  drop  his 
older  and  less  efficient  people  as  time  goes  on,  and  as  an  inducement  to  present 
employees  to  join  the  fund. 

For  there  must  be  an  inducement.  Otherwise  the  younger  will  not  join  because 
of  their  heedlessness  as  to  the  future,  and  the  older  partly  because  of  the  expense 
and  partly  because  of  the  inadequacy  of  such  pensions  as  they  could,  within  their 
few  remaining  years  of  work,  build  up  for  themselves. 

Pensions  provided  for  now  for  service  in  the  past,  as  here  outlined,  take  care  of 
what  is  known  as  accrued  liability.  This  is  the  liability  that  every  employer  who 
has  a  Pension  Plan,  is  building  up,  even  though  he  is  not  providing  for  its  eventual 
cost  by  setting  up  a  reserve  year  by  year.  Whether  or  not  he  recognizes  it  by  an 
entry  on  his  books,  the  liability  exists  just  the  same,  and  he  will  become  unpleasantly 
aware  of  it  in  years  to  come.  Employers  who  face  this  situation  squarely  to-day, 
rather  than  leave  it  to  future  years  or  future  managements,  will  prevent  post¬ 
poned  and  aggravated  difficulties. 


In  many  cases  Pension  Funds  are  set  up  by  employers,  out  of  which  to 
provide  future  pension  payments.  In  most  instances  such  funds  consist  of 
arbitrary  amounts,  set  aside  without  actuarial  guidance  and  bear  little  relation 
to  the  actual  future  liability,  which  management  recognizes  as  existing,  but 
rarely  endeavors  definitely  to  determine. 

Indeed,  under  the  rapidly  changing  industrial  conditions  of  the  time,  even  the 
most  carefully  prepared  estimates  of  future  liability  must  be  constantly  rechecked 
and  corrected,  and  it  is  only  by  stepping  beyond  the  range  of  such  industrial 
variants  as  labor  turnover  and  business  cycles,  and  dealing  with  the  individual 
strictly  as  an  individual  rather  than  as  a  part  of  a  labor  force,  that  the  Metro¬ 
politan  Life  Insurance  Company  has  been  able  definitely  to  define  and  limit  both 
present  cost  and  future  liability. 

No  plan  has  yet  been  devised  which  more  simply  or  more  soundly  takes  care 
of  the  accrued  liability  than  the  purchase  for  employees  of  Metropolitan  Pension 
Bonds  (Retirement  Certificates)  to  cover  Pensions  for  past  service. 

The  offering  of  such  Certificates  as  to  past  service  to  all  those  who  join  the 
contributory  Pension  Plan  makes  the  latter  doubly  inviting,  and  is  a  very  great 
help  in  stimulating  the  general  spirit  of  loyalty  and  good  will  which  should  accom¬ 
pany  the  inauguration  of  a  Pension  Plan. 

So  much  for  Past  Service.  The  cost  may  be  dealt  with  in  any  one  of  several 
ways;  or  past  service  may  be  put  wholly  aside. 

Cost  of  Pensions  as  to  Current  and  Future  Service 

Bearing  in  mind  the  fact  that  each  year  the  member  receives  a  Retirement 
Certificate,  representing  that  year’s  portion  of  his  Retirement  allowance  (which 
may  be  for  $10  flat,  or  a  percentage  of  a  year’s  pay,  or  for  any  other  pre-determined 
sum),  and  that  one  of  these  Certificates  is  delivered  and  paid  for  each  year,  it  is 
clear  that,  because  of  the  decreasing  number  of  years  during  which  the  amount 
paid  in  may  accumulate  interest,  the  cost  of  each  Certificate  must  gradually  in¬ 
crease  as  the  age  of  the  purchaser  approaches  65. 

It  does  so  increase,  as  a  matter  of  fact,  by  approximately  4  per  cent,  each  year; 
in  other  words,  a  certain  sum,  paid  to  the  Insurance  Company  this  year,  increases 
because  of  the  interest  it  earns  and  by  benefit  of  survivorship  by  about  4  per  cent. ; 
so  an  equivalent  payment  next  year  must  be  about  4  per  cent,  greater. 

Suppose  $10  is  selected  as  the  yearly  unit  of  Pension  as  shown  in  the  sample 
plan ;  that  is,  that  the  employee  who  began  work  at  24,  and  who  worked  for  forty-one 
years,  would,  when  he  was  65,  have  built  up  for  himself  an  annual  income  for  life 
of  forty-one  times  Ten  Dollars  or  $410. 

The  first  Certificate  would  be  purchased  when  he  had  completed  one  year  and 
was  25  years  of  age,  therefore  the  first  year’s  cost  would  be  $23.20  (or  say  46  cents 
a  week) ,  to  be  paid  wholly  (save  the  odd  cents)  by  the  employee. 

The  second  year’s  cost  (age  26)  would  be  $24.18,  of  which  $1.18  would  be  paid 
by  the  employer,  leaving  the  employee’s  payment  at  46  cents  a  week. 

The  third  year’s  cost  would  be  $25.22,  of  which  the  employer  would  pay  $2.22 
and  so  on. 


So  far  as  each  employee  is  concerned,  this  is  clearly  the  logical  procedure.  The 
employee  saves  a  given  amount — never  very  much — each  year.  The  employer’s 
payment,  nothing  at  all  the  first  year,  and  very  slight  for  succeeding  years,  becomes 
really  substantial  only  after  a  long  time,  when  he  is  amply  recompensed  by  the  long 
service  of  the  employee. 

In  the  following  diagram  the  cost  as  to  any  individual  each  year  is  represented 
by  a  bar — the  shaded  portion  only  showing  the  employer’s  payments — the  plain 
portion  those  of  the  employee. 


Why  the  Employer’s  Payment  on  a  Group  of  Employees 
Does  Not  Continually  Increase 

While  the  cost  for  each  employee  goes  up  a  little  each  year,  the  cost  for  a  group 
of  employees  does  not  advance  in  anything  like  the  same  proportion,  and  indeed 
may  not  advance  at  all,  because  the  slight  extra  payment  (about  4  per  cent,  on  the 
total  consideration)  is  apt  to  be  largely,  if  not  wholly,  over-balanced  by  death 
resignations  and  the  arrival  of  the  Pension  age. 

The  employer’s  cost  as  to  Pensions  is  in  many  ways  comparable  to  the  cost  of 
Group  Insurance.  Here  the  individual  rate  goes  up  year  by  year,  but,  because  of 
labor  turnover,  the  rate  for  the  group  remains  fairly  constant.  If  the  Pension  Plan 
applies  to  all  employees,  the  tendency  of  the  cost  to  increase  would  be  held  down  in 
like  manner;  but  it  is  to  be  borne  in  mind  that  the  turnover  among  employees  of 
say  five  years'  standing  or  more  is  substantially  less  than  among  those  of  say  three 
months’  standing,  so  if  the  plan  be  restricted  to  employees  of  long  standing,  this 
factor  cannot  be  surely  counted  on. 


[7 


How  the  Plan  is  Carried  on 

A  Group  Pension  Contract  is  issued  to  the  employer  by  the  Metropolitan  Life 
Insurance  Company  under  which  he  may  purchase  Pension  Bonds  or  Retirement 
Certificates,  with  or  without  death  benefit,  for  any  number  of  employees  in  any 
amount. 

This  is  a  participating  Contract,  under  which  any  surplus  earnings  will  be 
returned  to  the  employer  as  dividends. 

After  the  general  announcement  to  employees,  and  the  receipt  of  the  cards  of 
enrollment,  the  first  step  is  the  delivery  to  those  who  join  of  Pension  Bonds  covering 
Past  Service.  These  may  cover  all  past  services;  or  the  accrued  liability  may  be 
spread  over  a  number  of  years.  This  distribution  should  be  made  an  occasion  of 
enthusiasm  among  the  employees,  and  may  well  result  in  more  enrollments. 

A  list  of  enrollments  is  sent  to  the  Metropolitan  Life  Insurance  Company,  and 
each  week  deductions  are  made  from  the  pay  envelopes  according  to  the  table  of 
costs.  It  is  to  be  noted  that  these  deductions  run  for  50  weeks,  and  are  calculated 
to  the  nearest  even  half  dollar  under  the  cost  of  the  Refunding  Pension  Bond  for 
the  age  one  year  after  entry  when  the  first  bond  is  purchased.  The  amount  of  the 
weekly  deduction  does  not  change  unless  the  amount  of  pension  is  changed  and  in 
any  event  the  rate  remains  fixed  at  that  of  the  employee’s  age  of  entrance  into  the 
service.  No  account  is  kept  with  the  individual  employee,  except  when  he  is 
absent,  or  for  some  other  reason  the  deduction  is  not  made. 

Kach  week  a  list  is  made  up  of  these  from  whom  collections  have  not  been  made. 
At  the  end  of  the  membership  year  of  each  member,  this  list  is  consulted,  and  if  the 
failures  to  deduct  have  exceeded  two  in  the  52  weeks,  the  balance  due  is  collected  at 
the  time  of  the  delivery  of  Retirement  Certificates  for  the  year.  Thus,  there  is 
practically  no  individual  accounting. 

Monthly  checks  are  sent  to  the  Insurance  Company  each  month  for  one- 
twelfth  of  the  total  cost  of  the  Refunding  Pension  Bonds  ordered  for  the  year,  and, 
as  interest  at  the  rate  of  3|  per  cent,  is  allowed  on  these  payments,  the  adjusted 
interest  will  in  the  main  make  up  the  odd  cents  on  the  cost  of  each  Refunding 
Pension  Bond  at  its  delivery,  when  the  balance  is  settled. 

When  an  employee  member  leaves  the  service,  his  name  is  reported  to  the 
Insurance  Company,  which  cancels  the  order  as  to  his  Refunding  Pension  Bond, 
and  credits  the  employer  with  the  payments  made  on  his  account;  the  employer,  in 
turn,  returning  to  the  employee  the  amount  of  his  contribution,  and  to  its  own  treas¬ 
ury  the  amount  of  its  contribution ;  the  transaction  is  thus  closed  by  all  parties  to  it. 

Discontinuance  or  Suspension 

Not  the  least  advantage  of  the  Metropolitan  Pension  System  is  that  it  may  be 
suspended,  during  a  period  of  depression,  for  one  or  more  years  without  in  any  de¬ 
gree  affecting  its  safety  or  simplicity.  More  important  still,  no  industrial  depres¬ 
sion  or  even  the  entire  discontinuance  of  the  plan  can  in  any  way  affect  the  prompt 
and  regular  payment  of  Retirement  allowances  as  to  Certificates  already  issued  when 
and  as  their  owners  reach  the  age  at  which  their  pensions  become  payable. 

The  sole  effect  of  suspension  or  discontinuance  would  be  a  reduction  of  the  total 
number  of  Retirement  Certificates  which  would  have  been  issued  to  any  employee 
before  the  Pension  age,  and  therefore  of  the  total  amount  of  the  final  pension. 

8] 


Metropolitan  Pension  Bonds  or  Retirement  Certificates 

A  Group  Pension  Contract  is  issued  to  an  employer  under  which  he  may  pur¬ 
chase  Retirement  Certificates  for  any  number  of  Employees  in  varying  amounts. 

The  Retirement  Certificates  are  the  direct  obligations  of  the  Metropolitan 
Life  Insurance  Company.  There  are  two  forms,  the  one  called  (Pension  Bonds,  or 
Retirement  Certificates)  providing  a  payment  of  any  given  sum  each  year  to  an 
employee  as  long  as  he  lives,  the  first  payment  to  be  made  on  his  65th  birthday;  the 
other  (called  Refunding  Pension  Bonds,  or  Retirement  Certificates  with  Death 
Benefit)  in  addition  returns  the  purchase  price  in  case  of  death  before  age  65  or 
beginning  of  annuity  payments  and  guarantees  payments  for  ten  years,  if  the 
holder  lives  to  age  65  or  begins  to  draw  the  annuity. 

The  amount  of  pensions  payable  at  age  65  will  be  equivalent  to  the  amount  of 
all  Certificates  accumulated  by  any  employee  at  that  time. 

Each  Certificate  is  a  complete  contract  in  itself,  and  the  cost  of  any  Certificate 
has  no  relation  to  the  cost  of  another  Certificate  subsequently  purchased. 


Group  Pension  Bond  or  Retirement  Certificates 

Cost  to  provide  pension  of  $10  per  annum  to  commence  at  age  65. 


MALE 

FEMALE 

Age 

Nearest 

Birthday 

Cost 

Age 

Nearest 

Birthday 

Cost 

Age 

Nearest 

Birthday 

Cost 

Age 

Nearest 

Birthday 

Cost 

15 

$8.52 

41 

$26.09 

15 

$10.20 

41 

$32 

12 

16 

8.88 

42 

27.30 

16 

10.65 

42 

33 

62 

17 

9.26 

43 

28.58 

17 

11.13 

43 

35 

18 

18 

9.66 

44 

29.92 

18 

11.62 

44 

36 

83 

.  19 

10.08 

46 

31.35 

19 

12.  14 

45 

38 

58 

20 

10.51 

46 

32.85 

20 

12.68 

46 

40 

42 

21 

10.97 

47 

34.45 

21 

13.24 

47 

42 

36 

22 

11.44 

48 

36.  14 

22 

13.84 

48 

44 

41 

23 

11.94 

49 

37.94 

23 

14.47 

49 

46 

59 

24 

12.46 

50 

39.85 

24 

14.89 

60 

48 

90 

25 

13.00 

51 

41.89 

25 

15.80 

61 

51 

36 

26 

13.56 

52 

44.07 

26 

16.50 

52 

53 

98 

27 

14.  15 

53 

46.41 

27 

17.25 

53 

56 

76 

28 

14.77 

54 

48.91 

28 

18.03 

54 

59 

76 

29 

15.42 

55 

51.60 

29 

18.84 

55 

62 

97 

30 

16.  10 

56 

54.51 

30 

19.69 

56 

66 

43 

31 

16.80 

57 

57.64 

31 

20.59 

57 

70 

16 

32 

17.55 

58 

61.05 

32 

21.52 

58 

74 

19 

33 

18.32 

59 

64.74 

33 

22.49 

59 

78 

38 

34 

19.  14 

60 

68.78 

34 

23.50 

60 

82 

38 

35 

19.99 

61 

73.20 

35 

24.57 

61 

87 

42 

36 

20.89 

62 

78.06 

36 

25.68 

62 

92 

13 

37 

21.83 

63 

83.42 

37 

26.85 

63 

97 

16 

38 

22.81 

64 

89.37 

38 

28.08 

64 

102 

71 

39 

23.85 

65 

95.53 

39 

29.36 

65 

109 

14 

40 

24.94 

40 

30.71 

[9 


Group  Refunding  Pension  Bond  or  Retirement  Certificates  With  Death  Benefit 

Cost  to  provide  a  pension  of  $10  per  year;  payments  beginning  at  age  65, 
guaranteed  for  ten  years  certain  and  continuing  as  long  thereafter  as  Insured  may 
live.  Cost  returned  in  full  in  the  event  of  death  prior  to  beginning  of  annuity 

payments. 


MALE 

FEMALE 

Age 

Nearest 

Birthday 

Cost 

Age 

Nearest 

Birthday 

Cost 

Age 

Nearest 

Birthday 

Cost 

Age 

Nearest 

Birthday 

Cost 

15 

$15 

40 

41 

$45 

83 

15 

$17.57 

41 

$51 

19 

16 

16 

03 

42 

47 

88 

16 

18.29 

42 

53 

39 

17 

16 

70 

43 

50 

04 

17 

19.05 

43 

55 

68 

18 

17 

40 

44 

52 

27 

18 

19.83 

44 

58 

07 

19 

18 

12 

45 

54 

61 

19 

20.65 

45 

60 

57 

20 

18 

88 

46 

57 

07 

20 

21.50 

46 

63 

18 

21 

19 

67 

47 

59 

62 

21 

22.39 

47 

65 

89 

22 

20 

50 

48 

62 

30 

22 

23.32 

48 

68 

72 

23 

21 

36 

49 

65 

09 

23 

24.29 

49 

71 

67 

24 

22 

26 

60 

68 

00 

24 

25.30 

60 

74 

73 

25 

23 

20 

51 

71 

02 

25 

26.36 

51 

77 

91 

26 

24 

18 

62 

74 

16 

26 

27.46 

52 

81 

21 

27 

25 

22 

53 

77 

41 

27 

28.62 

53 

84 

63 

28 

26 

28 

54 

80 

78 

28 

29.81 

54 

88 

17 

29 

27 

42 

55 

84 

24 

29 

31.06 

55 

91 

82 

30 

28 

59 

56 

87 

82 

30 

32.37 

66 

95 

59 

31 

29 

83 

67 

91 

49 

31 

33.73 

57 

99 

47 

32 

31 

11 

58 

95 

24 

32 

35. 15 

68 

103 

44 

33 

32 

47 

59 

99 

06 

33 

36.65 

59 

107 

50 

34 

33 

87 

60 

102 

94 

34 

38.20 

60 

111 

62 

35 

35 

36 

61 

106 

86 

35 

39.81 

61 

115 

81 

36 

36 

91 

62 

110 

80 

36 

41.51 

62 

120 

06 

37 

38 

53 

63 

114 

87 

37 

43.28 

63 

124 

32 

38 

40 

23 

64 

118 

63 

38 

45.13 

64 

128 

56 

39 

42 

01 

66 

122 

48 

39 

47.06 

65 

132 

80 

40 

43 

88 

40 

49.08 

10] 


k 


Let  the  Metropolitan  Suggest  A  Plan 


r 


Primarily,  a  Pension  or  Retirement  Plan 
should  be  fitted  to  the  social,  economic  and 
labor  conditions  of  the  industry  and  of  the 
individual  employer  in  whose  plant  it  is  to  be 
installed.  A  great  advantage  of  the  Metro¬ 
politan  Plan  of  Individual  Deferred  Annuities 
is  its  flexibility  and  adaptability. 

It  is  suggested  to  employers  having  Pension 
Plans  in  operation  or  under  consideration  that 
they  consult  this  Company . 

No  expense  or  obligation  is  involved,  and 
the  benefit  of  such  consultation,  whether  or 
not  the  Metropolitan  System  be  adopted,  may 
be  substantial  and  immediate. 


For  information  and  further  particulars  on 
Pensions,  address 

METROPOLITAN  LIFE  INSURANCE  COMPANY 
Any  Branch  Office,  or 

Group  Division  1  Madison  Avenue,  N.  Y.  C. 


[ii 


